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Crude Bonanza

Nevin John     June 11, 2019

Slackening global demand has brought down crude oil prices. The re-elected Narendra Modi-government has much to cheer as falling oil prices had helped it tame inflation and fiscal deficit during its previous term. Besides, lower fuel prices usually boost consumer spending.

When fuel prices were low in the early years of the previous government, it passed on only a fraction of the benefits to consumers and used the high excise duty from sale of petrol and diesel to offset the shortfall in disinvestment income. So, the question this time is whether the government will pass on the benefits to consumers or not. Second, cheaper crude oil prices will make exploration and production (E&P) unviable in India. It will also affect revenues and margins of E&P companies like ONGC and Cairn India. The oil marketing companies will also have a short-term impact depending on the order price of their future crude basket. Their top line will shrink when product prices fall.

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